Legislature(2005 - 2006)BUTROVICH 205

04/11/2006 03:30 PM STATE AFFAIRS


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03:36:13 PM Start
03:37:12 PM Confirmation Hearing: Alaska Human Rights Commission - Randy Eledge
03:41:47 PM SB234
04:38:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 234 COMMUNITY DIVIDEND PROGRAM TELECONFERENCED
Moved SB 234 Out of Committee
Confirmation Hearing:
Alaska Human Rights Commission
Randy Eledge
Bills Previously Heard/Scheduled
               SB 234-COMMUNITY DIVIDEND PROGRAM                                                                            
                                                                                                                              
CHAIR   GENE  THERRIAULT   announced  SB   234  to   be  up   for                                                               
consideration.                                                                                                                  
                                                                                                                                
3:41:47 PM                                                                                                                    
MIKE BLACK,  Director of  the Division  of Community  Advocacy in                                                               
the  Department of  Commerce, Community  & Economic  Development,                                                               
introduced SB 234  on behalf of the  administration. He explained                                                               
that the  Community Dividend Program would  provide a sustainable                                                               
community dividend  using the estimated  $27.6 million  in annual                                                               
earnings  of  the  Alaska Capital  Income  Fund  {"Amerada  Hess"                                                               
account} as  the funding source.  The bill proposes  to establish                                                               
an annual $10  million base grant for distribution  to all cities                                                               
and boroughs as follows:                                                                                                        
   · Cities with less than 100 residents receive $25,000                                                                        
   · Cities with 100 to 249 residents receive $30,000                                                                           
   · Cities with 250 to 500 residents receive $35,000                                                                           
   · Cities with more than 500 residents receive $40,000                                                                        
   · Boroughs receive $50,000                                                                                                   
   · Balance of funds distributed on a per capita basis                                                                         
                                                                                                                                
The  bill  also  provides  financial   incentives  for  areas  to                                                               
organize into  boroughs. Incorporation  grants would  be provided                                                               
as follows:  1) a $1 million grant  in year one; 2) a  $1 million                                                               
grant in year two; 3) a $500,000 grant in year three.                                                                           
                                                                                                                                
SB 234  also provides supplemental  grants to  organized boroughs                                                               
such  that approximately  $16.6 million  would be  distributed to                                                               
each organized borough on a per capita basis.                                                                                   
                                                                                                                                
The bill  describes the essential  public services for  which the                                                               
money  could be  used  including:  public safety,  infrastructure                                                               
maintenance, education, and fuel.                                                                                               
                                                                                                                                
3:44:40 PM                                                                                                                    
SENATOR WAGONER questioned what  interest rate the Alaska Capital                                                               
Income Fund is earning.                                                                                                         
                                                                                                                                
MR. BLACK said he'd get the information.                                                                                        
                                                                                                                                
SENATOR WAGONER  mused the  earnings would be  about the  same as                                                               
the Permanent Fund.                                                                                                             
                                                                                                                                
CHAIR THERRIAULT added  that fund has averaged a  bit better than                                                               
10 percent.                                                                                                                     
                                                                                                                                
SENATOR WAGONER said he was  thinking that 6.5 percent would keep                                                               
up with  inflation over time  so as the dollar  devaluates needed                                                               
increases could come from the interest income.                                                                                  
                                                                                                                                
MR.  BLACK  said  the  fiscal  note  indicates  that  the  annual                                                               
interest earnings on $424 million  have been about 6.5 percent so                                                               
that's where the $27.6 million came from.                                                                                       
                                                                                                                                
SENATOR  WAGONER  countered he  thought  the  money was  invested                                                               
along with the Permanent Fund and earned more than that.                                                                        
                                                                                                                                
CHAIR THERRIAULT remarked the way  the particular instruments are                                                               
invested could be a factor.                                                                                                     
                                                                                                                                
SENATOR  WAGONER  mentioned  the  Amerada  Hess  court  case  and                                                               
counseled using caution to avoid past pitfalls.                                                                                 
                                                                                                                                
JOHN BOUCHER,  Senior Economist with  the Office of  Management &                                                               
Budget, explained that  the $27.6 projection is based  on the mid                                                               
case scenario  earnings projections  for the Permanent  Fund. The                                                               
actual return could vary up or down.                                                                                            
                                                                                                                                
SENATOR  ELTON  questioned  why  the  administration  decided  to                                                               
identify Amerada Hess as the funding source.                                                                                    
                                                                                                                                
MR. BLACK responded  he couldn't explain the  thought process but                                                               
he did know that the  administration wanted a funding source that                                                               
was sufficient..  Furthermore, Amerada  Hess is  identifiable and                                                               
has no direct connection to the Permanent Fund.                                                                                 
                                                                                                                                
SENATOR ELTON said  he would prefer to  appropriate general funds                                                               
on an annual basis. The problem  with using a Permanent Fund sub-                                                               
account is  that the amount  that can be  spun off each  year may                                                               
prove to be constraining.                                                                                                       
                                                                                                                                
MR. BLACK argued that using  the earnings from the Alaska Capital                                                               
Income   Fund    is   more   predictable   than    general   fund                                                               
appropriations.                                                                                                                 
                                                                                                                                
SENATOR  ELTON responded  this creates  problems.  For the  first                                                               
time  a  Permanent Fund  sub-account  would  be used  for  annual                                                               
expenditures and  this may constrain  future Legislatures  if the                                                               
earnings aren't sufficient to fund the program.                                                                                 
                                                                                                                                
CHAIR THERRIAULT advised that the  proceeds from Amerada Hess are                                                               
general fund.                                                                                                                   
                                                                                                                                
SENATOR ELTON  said he didn't  disagree, but this  establishes it                                                               
as  a funding  source. You  could say  the same  thing about  the                                                               
earnings and  everyone knows about the  political risk associated                                                               
with spending Permanent Fund earnings.                                                                                          
                                                                                                                                
CHAIR  THERRIAULT said  the  difference is  that  the money  that                                                               
spins  off  from  the  retained  earnings  increases  the  annual                                                               
dividend  while  the  money  that spins  off  from  Amerada  Hess                                                               
doesn't increase the annual dividend.                                                                                           
                                                                                                                                
SENATOR ELTON  pointed out  two anomalies:  First, unincorporated                                                               
boroughs  are left  out of  the program  and second  a system  of                                                               
inequity  is created  for unincorporated  communities and  cities                                                               
that haven't consolidated with borough  governments. He asked for                                                               
an explanation.                                                                                                                 
                                                                                                                                
MR.  BLACK  replied the  department  believes  that boroughs  and                                                               
cities are  the proper recipient  for revenue sharing.  They have                                                               
specific requirements under state law  to provide services and to                                                               
meet  operation  requirements. Unincorporated  communities  don't                                                               
have the  same requirements and  that's the reason  for excluding                                                               
them from this formula.                                                                                                         
                                                                                                                                
SENATOR ELTON questioned  whether there couldn't be  a formula to                                                               
qualify unincorporated  communities that provided  certain public                                                               
services.                                                                                                                       
                                                                                                                                
MR. BLACK replied if that  approach is taken the department would                                                               
recommend that  the money  flow through the  borough so  that the                                                               
decisions are made at that level.                                                                                               
                                                                                                                                
SENATOR ELTON  offered a comparison.  Ketchikan has a city  and a                                                               
borough government  and Juneau has a  consolidated government. As                                                               
currently  written, Ketchikan  would receive  $90,000 and  Juneau                                                               
would receive $50,000.  He asked if there had  been discussion of                                                               
that anomaly.                                                                                                                   
                                                                                                                                
MR. BLACK said  he was unaware of any  direct discussions related                                                               
to  unified  boroughs, but  it  could  be  argued that  the  base                                                               
overhead  is higher  when separate  city and  borough governments                                                               
serve the same area. Except for  the $10 million base amount, the                                                               
money would be distributed based on population.                                                                                 
                                                                                                                                
SENATOR  ELTON responded  some governments  have unified  to keep                                                               
from spending public dollars on excess overhead.                                                                                
                                                                                                                                
CHAIR THERRIAULT  noted that the $2.5  million provides incentive                                                               
for  unorganized  areas to  become  organized,  but there  is  no                                                               
allowance for funds to flow to an unorganized municipality.                                                                     
                                                                                                                                
MR. BLACK  responded the per  capita amount would be  provided to                                                               
boroughs and  unincorporated areas would  be included in  the per                                                               
capita count. Then  the boroughs could distribute  money based on                                                               
services that are provided.                                                                                                     
                                                                                                                                
CHAIR  THERRIAULT asked  him to  address municipalities  that are                                                               
organized under federal law.                                                                                                    
                                                                                                                                
MR. BLACK replied that provision  addresses the Metlakatla Indian                                                               
Reservation.                                                                                                                    
                                                                                                                                
4:02:28 PM                                                                                                                    
RON  LONG, Kenai,  stated that  he was  representing himself.  He                                                               
asked the  committee to consider a  sustainable funding mechanism                                                               
for communities and suggested that SB 234 is a good start.                                                                      
                                                                                                                                
He  described the  Kenai  Peninsula Borough.  As  a Second  Class                                                               
Borough,  it provides  basic  mandated  services with  additional                                                               
levels of service  being available within the  various cities. He                                                               
opined that  the bill  would offset  some of  the taxes  that are                                                               
imposed  on citizens  to carry  out the  state mandates.  It also                                                               
provides meaningful  tax relief  for residential  property owners                                                               
and businesses.  He expressed the  hope that the  Legislature and                                                               
the administration identify a funding  source that is sustainable                                                               
and transparent  so that it's  possible to build a  better budget                                                               
for citizens.                                                                                                                   
                                                                                                                                
He asked  members to keep  in mind that the  unincorporated areas                                                               
have no unfunded  mandates. That is an  important distinction and                                                               
it's another reason that SB 234 makes sense, he concluded.                                                                      
                                                                                                                                
CHAIR  THERRIAULT asked  for his  perspective  on which  unfunded                                                               
mandates might not be provided if there were no mandates.                                                                       
                                                                                                                                
MR. LONG responded the $150,000  senior property tax exemption is                                                               
the first  that comes  to mind  and another  is the  reduction of                                                               
school debt reimbursement from 90 percent to 60 percent.                                                                        
                                                                                                                                
4:06:14 PM                                                                                                                    
PAUL FUHS, Lobbyist for the  Kuskoquim Corporation, described the                                                               
corporation,  which includes  10 villages  on the  Kuskoquim that                                                               
value self-determination. He informed  members that the people in                                                               
the area have formed an  exploratory committee for the purpose of                                                               
petitioning to  become a borough.  Although the area is  poor, it                                                               
has promise because  of the Donlin Creek Mine.  However, the mine                                                               
has said  it won't go  forward until  some kind of  government is                                                               
formed so that a tax rate  can be negotiated. That situation is a                                                               
catch-22, but SB 234 helps  provide a solution. He encouraged the                                                               
committee to pass the bill on to the Finance Committee.                                                                         
                                                                                                                                
Speaking for himself and as a  former mayor he said that Title 29                                                               
is one  of the strongest elements  of democracy in the  state and                                                               
it's sad  that some  local governments are  going by  the wayside                                                               
because they can't afford basic administration.                                                                                 
                                                                                                                                
4:09:26 PM                                                                                                                    
JOHN  HOZEY, Valdez  City Manager,  spoke in  support of  revenue                                                               
sharing  in general.  Observing that  times are  tough for  local                                                               
municipalities, he  informed members  that communities  need help                                                               
at a level that  will make a difference. SB 234  is a good start,                                                               
but you  need to find a  larger funding source than  Amerada Hess                                                               
can provide, he said.                                                                                                           
                                                                                                                                
Responding to  earlier comments,  he urged caution  in penalizing                                                               
communities like Valdez for not  forming a borough if there isn't                                                               
any discussion  about making Title  29 changes to make  forming a                                                               
borough more user friendly.                                                                                                     
                                                                                                                                
SENATOR HUGGINS asked  him to describe three rules  that ought to                                                               
be changed.                                                                                                                     
                                                                                                                                
MR. HOZEY replied the Model  Borough philosophy is a stranglehold                                                               
on forming  new boroughs. If  a proposed borough  doesn't conform                                                               
to  the  model  boundaries  the proposal  won't  go  forward.  He                                                               
mentioned  the   task  force  that  worked   through  the  Alaska                                                               
Municipal League  to recommend  changes to Title  29 to  give the                                                               
Local   Boundary   Commission   increased  authority   to   amend                                                               
petitions. The  main difficulty is  that there is  no flexibility                                                               
for putting petitions  together that make sense  from a municipal                                                               
point of view.                                                                                                                  
                                                                                                                                
4:15:12 PM                                                                                                                    
KEVIN  RITCHIE,  Executive  Director  for  the  Alaska  Municipal                                                               
League  (AML), introduced  himself and  explained that  the 75/75                                                               
button  his  lapel describes  a  method  for crafting  a  revenue                                                               
sharing program. $75,000  is the minimum amount  necessary to run                                                               
a  local  government  regardless   of  size.  The  second  number                                                               
represents $75 million, which is  the recommended overall funding                                                               
level for the program.                                                                                                          
                                                                                                                                
MR. RITCHIE  noted that when  Governor Murkowski spoke to  AML he                                                               
discussed putting more money into  a revenue sharing program than                                                               
is provided  under SB 234.  Using the earnings from  Amerada Hess                                                               
would  provide enough  to save  small communities,  but it  isn't                                                               
enough  to  provide  substantial  tax relief  and  assistance  to                                                               
larger communities.  He further noted  that the State  Chamber of                                                               
Commerce  chose revenue  sharing  and PERS  as  its top  lobbying                                                               
priorities  because of  the strong  connection  between having  a                                                               
strong  business  community  and affordable  taxes.  Taxation  in                                                               
communities is  becoming more of  an issue with business  and the                                                               
public, he said.                                                                                                                
                                                                                                                                
Referencing  Mr.   Long's  testimony  related  to   mandates,  he                                                               
suggested   that  it's   more   about   partnership  and   shared                                                               
responsibility between the state  and its political subdivisions.                                                               
Whether citizens are  paying state or local taxes,  it clear that                                                               
it  takes a  certain  amount to  maintain  an appropriately  high                                                               
quality of  life. Sharing revenue  with municipalities  to reduce                                                               
taxes or to provide better  services or to keep small communities                                                               
viable  is  a  high  constitutional priority  of  the  state,  he                                                               
asserted.                                                                                                                       
                                                                                                                                
With  regard to  Senator  Elton's question  about the  difference                                                               
between  unified and  non-unified  boroughs, he  opined that  the                                                               
issue is addressed the best in  the bill that came from the local                                                               
government  commission.  Essentially  it   has  three  levels  of                                                               
funding: $75,000  for cities; $150,000 for  non-unified boroughs;                                                               
and $300,000 for unified boroughs.                                                                                              
                                                                                                                                
4:19:46 PM                                                                                                                    
SENATOR HUGGINS  asked for the  total amount under 75/75  as well                                                               
as the funding source.                                                                                                          
                                                                                                                                
MR.  RITCHIE reiterated  AML recommends  that $75  million is  an                                                               
appropriate amount for  a revenue sharing program  and $75,000 is                                                               
the minimum to allow a small  city to operate. With regard to the                                                               
source, AML  urges that  it be sustainable.  Because there  is no                                                               
dedicated funding source under the  constitution, there must be a                                                               
political  will to  fund any  program annually.  Discussions have                                                               
included:  Amerada Hess  earnings, constitutional  budget reserve                                                               
(CBR) earnings,  and general fund  appropriations. He  noted that                                                               
the  latter sustained  the program  for  30 years.  He agreed  to                                                               
provide the committee  with a briefing paper,  which would answer                                                               
the question more fully.                                                                                                        
                                                                                                                                
CHAIR THERRIAULT  asked Mr.  Ritchie to comment  on the  issue of                                                               
the unincorporated communities.                                                                                                 
                                                                                                                                
MR.  RITCHIE  used the  six  cities  in  the Lake  and  Peninsula                                                               
Borough  as  an  example.  Under the  AML  proposal  for  revenue                                                               
sharing each  community would receive  $75,000. He noted  that if                                                               
the borough  were to receive  $75,000 to  take care of  the other                                                               
half of the population it  would be inequitable. What makes sense                                                               
and what is reflected in SB 247  is to provide a larger amount of                                                               
base funding for boroughs than for cities.                                                                                      
                                                                                                                                
Revenue   sharing    under   SB   247   proposes    $75,000   for                                                               
municipalities,  $150,000   for  non-consolidated   boroughs  and                                                               
$300,000 for  consolidated boroughs.  Allowing that the  last two                                                               
numbers  might  be low,  he  said  there  are two  advantages  in                                                               
providing sufficient  base funding  for boroughs. First  it would                                                               
provide  incentive  for boroughs  to  form  and second  it  would                                                               
address the inequities that have been described.                                                                                
                                                                                                                                
4:23:49 PM                                                                                                                    
MARK HICKEY, Lobbyist  for the Lake and  Peninsula Borough (LPB),                                                               
stated support  for a meaningful and  sustainable revenue sharing                                                               
program.  Although  the  borough  hasn't  endorsed  a  particular                                                               
option, it  recognizes that the  AML 75/75 program has  merit. Of                                                               
particular importance is minimum funding for cities.                                                                            
                                                                                                                                
He  referenced  his  April   11  memo  discussing  unincorporated                                                               
communities within the  borough boundaries and said  that LPB has                                                               
16 communities:  6 cities and 10  unincorporated communities that                                                               
are primarily  Native villages with  populations of 200  or less.                                                               
Many  of the  unincorporated communities  have been  in existence                                                               
for  years   and  provide  services  such   as  fire  protection,                                                               
emergency medical  service, search &  rescue, and sewer  & water.                                                               
Typically  the  services  are   administered  through  a  village                                                               
administrator and a tribal council.                                                                                             
                                                                                                                                
Citing  aspects  of  different bills  he  cautioned  against  the                                                               
unintended consequence  in which it's actually  a disincentive in                                                               
the future to  be a borough. He noted that  SB 234 doesn't suffer                                                               
that deficiency  and that  Mr. Ritchie's  idea of  increasing the                                                               
base for boroughs provides a simple approach.                                                                                   
                                                                                                                                
MR. HICKEY cited Senator Elton's  suggestion as another solution.                                                               
That  is  to  establish  a   standard  such  that  unincorporated                                                               
communities  receive money  only if  they  are real  and if  they                                                               
provide certain  services. The issue  is confusing, but  you need                                                               
to look at the basic question of what's equitable, he concluded.                                                                
                                                                                                                                
4:29:30 PM                                                                                                                    
LUKE HOPKINS,  Fairbanks North Star  Borough Assembly  Member and                                                               
AML Board  Member, described the  bill as a good  starting point.                                                               
He expressed the view that the  overall funding level ought to be                                                               
increased and  that the 75/75  proposal would work. He  asked the                                                               
committee to consider a $75,000 floor.                                                                                          
                                                                                                                                
With  regard to  the funding  source he  agreed with  others that                                                               
Amerada  Hess wouldn't  provide  sufficient  funds. He  suggested                                                               
that those  funds could  be combined with  CBR earnings  and/or a                                                               
general fund appropriation.                                                                                                     
                                                                                                                                
4:32:07 PM                                                                                                                    
PEGGY  COWAN,  Superintendent  of  the  Juneau  School  District,                                                               
reminded members  that a strong  community makes  strong schools.                                                               
Juneau is fortunate, she said,  because the borough traditionally                                                               
funds  schools  to  the  cap. She  encouraged  the  committee  to                                                               
support revenue sharing.                                                                                                        
                                                                                                                                
CHAIR THERRIAULT proposed  holding the bill to  give members time                                                               
to consider amendments.                                                                                                         
                                                                                                                                
SENATOR ELTON  responded his understanding is  that one committee                                                               
would review  all the  revenue sharing proposals  at one  time so                                                               
he'd prefer to move the bill.                                                                                                   
                                                                                                                                
CHAIR   THERRIAULT  said   if  members   didn't  anticipate   any                                                               
amendments then he would entertain a motion.                                                                                    
                                                                                                                                
SENATOR  ELTON motioned  to  report SB  234  and attached  fiscal                                                               
note(s) from committee with individual recommendations.                                                                         
                                                                                                                                
CHAIR THERRIAULT  announced that  without objection SB  234 would                                                               
move to the Finance Committee.                                                                                                  

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